Lately the niggling fundamental doubt has returned to me about...

Lately the niggling fundamental doubt has returned to me about the whole gig of buying shares in public companies. I was thinking of buying more shares in SAE because it is having drilling and production success. It's paying its own costs from production and seems to have a lot of potential before it.

I emailed the company about its dividend policy for the future. It has no policy. Not only doesn't it offer a commitment to pay a dividend stream from future profits, it wont even say that it has a firm desire and intention to do so.

So if we don't invest in a company for its present or future dividends, what do we invest in it for? Why take the risk? Well it has to be so we can sell the share later to someone else. And why is he going to buy it? So that he can sell it to yet another . . . and so on. The added element in the sequence is that each buyer expects to be a seller at a profit. But where does this stop or at least reach a sort of equilibrium? It can't go on forever, or even for a long time. Specially not these days

The finance director of Salinas said in his email that, " . . if Salinas grows significantly over the next few years – we may implement a dividend policy."
Well I have to read that as a "no". If the furthest he will go is that Salinas will not actually rule out a dividend stream then I take that as a "no". I'm deciding whether to buy; I need something more than 'might do it, might not'.
What he's effectively saying is that all I get for my potential investment is total uncertainty. I am to rely not only on the company's continued profitability and asset expansion, but also the willingness of someone to buy the share from me later on for more than I paid for it. And he will do that because . . well been through that already.

Why buy a non income paying asset, that you have to assume will never pay an income? If you buy gold you are buying a substance that will always store value. If you buy a painting you can look at it, and sell it to someone else who wants to look at it. A house you can live in. Why buy a share in a company that you have to assume will never pay a dividend?

Prospective re-buyers are dwindling because of credit contraction and general market conditions. They're dwindling because they've lately experienced being stopped out, or margin called, or forced to liquidate at a loss. The trend is to be losing on a sale and the juice of credit is less likely to be resorted to, and harder to get anyway. When I think about it, scrip in a company that doesn't have a clear path to dividend payment is a confidence game like fiat money. You're holding something that has no real value at all, but just bathes in a sort of light of belief and confidence that it represents real value and will continue to be exchangeable for real value.

Management wants to spend all revenue in the foreseeable future on exploration, development, expanding production, and administration. And so you you say, "and yes .. the bottom line is? . . . how nice for you, but what's in it for me duderovsky?"

It's easy to see why the boards and managers of these growth companies are complacent about future dividends. They are accruing with each passing year very hefty salaries and fees. They get their shares through remuneration policies. They take no capital risk usually, but are perpetually rewarded. Why do we buy this?